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Snapchat Daily Active User Growth Continues

Industry: Internet Services; Social Media
Current: Macro-economic

Snapchat has witnessed 20% or more year-over-year growth in daily average users (DAUs) for five consecutive quarters, whereas DAUs dipped for Facebook for the first time ever in Q4 2021
Snap Inc, the parent company of Snapchat, recorded a free cash flow of $223 million and a 42% year-over-year increase in revenue at $1.3 billion in Q4 2021
With declining user attention span, social media is focusing on shorter formats such as TikTok

Snapchat Daily Active User Growth Continues

For any social media company, Daily Average Users (DAUs) is a crucial metric since revenue is generated from these users based on their advertisement content and the ability to collect data and metrics sold to the advertisers. Snapchat has witnessed a steady year-over-year growth in DAUs of 20% or more over the last five consecutive quarters. In Q4 2021, DAUs increased 20% to 319 million in Q4 2021 compared to 265 million in Q4 2020. This successive growth has increased advertisers and auction-based advertising demand on the platform, ensuring more ad spending on Snapchat. For the first time, Snap Inc., the parent company of Snapchat, recorded a net profit for the quarter ending December 2021.

New Offering and Partnerships Aid User Growth

In recent times, Snapchat has expanded its product offerings and content offerings. It offers services such as snaps, stories on the Discover feature, Lenses, Filters, and AR ads, which promote user engagement, thus increasing the user base. The increased user base attracts advertisers and contributes to revenue with the help of Sponsored Lenses or Sponsored Filters, AR ads, and video ads.

Snap has been one of the pioneers of augmented reality (AR) products. Some significant offerings focus on AR, virtual try-on experience, and various video Filters/Lenses. In a bid to enhance its AR features, the company acquired firms with a focus on AR, such as Ariel AI (a start-up that focuses on rendering a 3D model of a person in real-time), Voca AI (which offers AI-based human voiced agents), and WaveOptics (an AR display provider). Snap also partnered with online retail companies such as Flipkart and cosmetics companies such as Sugar Cosmetics and MyGlamm to bring more AR shopping and virtual try-on experiences to Snapchatters in India.

On January 27, 2022, Snapchat announced that it had renewed multi-year global content deals with media trio Disney, NBCUniversal, and ViacomCBS to continue existing shows and launch news shows across brands such as ESPN, MTV, and Bravo.

Apple's Privacy Policy Roadblock

Snap hit a roadblock in October 2021 as shares fell 25% in after-hours trading after the CEO said that Apple's new iPhone privacy policy hurt its ability to target users for ads. With Apple's new privacy policy, iPhone users must actively permit apps to track their journeys on the web. If businesses fail to get that consent, they cannot track them, leaving companies unable to target users for their advertisement clients. It has meant fewer users to target for interest-based advertisement, resulting in advertisers cutting their social media ad spending.

The setback was temporary as Snap's advertising and sales teams helped the advertising partners transition through this change and helped adopt the policy, enabling a quicker-than-anticipated recovery. The advertisers will take some time to adjust to these newer ad campaign tools and gauge their growth as per the new optimized metrics. According to officials at Snap, it will take a couple more quarters to navigate through the iOS platform changes and increase the advertising partners' spending.

Future of Social Media to Look More Like TikTok

The average user attention span is getting shorter as social media dominates the world with short visual experiences and the growing popularity of 10-second videos. As users have turned to shorter video formats, the popularity of video platforms such as TikTok has soared. Users are moving away from social media sites such as Facebook. Facebook in Q4 2021 witnessed a decline in the total number of users for the first time since its debut. However, Snapchat, with its varied product offerings that include short-form videos (Spotlight), was able to capitalize on this trend and increase its daily active users.

Both Meta and Snapchat CEOs acknowledged TikTok as a formidable competition during the recent earnings calls. With the launch of new and compelling social media formats, which have the potential to capture user attention quickly, companies with ubiquitous structures such as Meta and Snapchat must play catchup.

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